Bundesbank sees risks to financial system from low interest rates

Bundesbank sees risks to financial system from low interest rates

This was said by andreas dombret, chairman of the bundesbank, at the presentation of the financial stability report on thursday. However, the longer it lasted, the greater the side effects and risks to financial stability: "the low interest rate environment is becoming more and more of a burden on the german financial system."

Low interest rates continue to deplete insurers’ buffers. "It is becoming increasingly difficult for life insurers to earn the guaranteed interest rate in view of the low interest rates," said dombret. In addition, the valuation reserves on insurers’ balance sheets became a problem when they had to be distributed to policyholders.

German banks, which traditionally rely heavily on interest surpluses, are also affected, according to the bundesbank. The tough competition has already taken its toll on the institutions over the past 15 years, said bundesbank vice president sabine lautenschlager. Low interest rates now put additional pressure on business models. The geldhausers therefore had to cut their costs.

The bundesbank also sees dangers for the real estate market. After prices, especially in large cities, had already risen by almost a quarter between 2009 and 2012, the bundesbank expects prices to rise by a further 9 percent in 2013. However, it does not yet recognize an acute danger. Thus the credit had increased only moderately. In addition, the debt sustainability of private households is solid.

"It cannot be ruled out, however, that property owners will suffer losses in assets due to possible price corrections," dombret said. He referred to the experiences of other countries, where price bubbles had formed during periods of long low interest rates. The bundesbank will therefore continue to monitor the situation closely.

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